Basically, if you are over, then you are a chapter 13. If you are under, then you are a chapter 7. (The current figures are at the bottom of this page).
W2 wage earner —– Normally, when I ask someone how much they make, I am trying to determine if they can qualify for a chapter 7 case. Most people can give me a straight answer because most people have steady W2 income. These cases are fairly straightforward.
High income client — If I am dealing with a person with W2 income who makes too much money, I won’t get a straight answer. They will inevitably ask the following question: “Are we talking about after all my expenses?” The annoying attorney-phrased answer is “kind of.” The moment someone says this, I know that they’ll be a complex case and most likely a chapter 13 repayment type of case. I can subtract standard IRS averaged expenses, reasonable car payments, alimony/child support, charitable contributions, and a slew of other expenses, but those expenses are generally standard expenses that average clients can take out. I just need the gross income as a starting point. I’ve come to realize that the reason they ask about expenses is because they subconsciously know that they make too much and are hoping that I can run my figures after taking out luxury items such as their $250 a month pet insurance or $950 Lexus lease. (I don’t).
Here’s a good recent example: I ask a potential client for her income and her husband’s income. She says they each make $xxx an hour. Notice that she didn’t give me a straight answer. I ask for paystubs. She only sends a recent January paystub. Over the course of 3 days and about 8 email, she finally admits: “He works a lot of OT and gets quarterly bonuses. He averages 100 hours per pay period and in the summer more. I’ll send a bunch more paystubs.” It’s been a week, and I still don’t know how much they make (gross or net). However, I’m betting that they are well above the median income, and they’ll have to be in some kind of chapter 13 repayment plan.
I begin by looking at your gross. I then take out normal, acceptable expenses. If you are “living large,” I cannot take that into account. When the US Trustee (Department of Justice) audits your case, they won’t allow me to deduct personal expenses like a $500 a month spa plan. That is not a reasonable expense, and it is an unfair detriment to your creditors (if you pay that $500 to the spa instead of your creditors). I know that it sounds unfair to the person who believes that the expense is reasonable, but there’s been enough litigation to prove that you can claim standard expenses, not luxury ones.
Self-employed client — If I’m dealing with a self-employed person, they will ask me the following question: “Are we talking about my business gross income, or the net after expenses?” If you are self-employed, then I use the gross as a starting point, but after we take out legitimate business expenses, it’s that net number that we’ll really be using.
Now remember that these numbers can be adjusted by child support payments (received or made), larger mortgages, huge tax debt, etc. It is a gross overgeneralization to say that if you are over that figure then you MUST be a chapter 13, but this is the baseline we start with. That being said, here are the current figures for Salt Lake County that we use on our Form 122 (6 month average of current monthly income and disposable income):
Married with 1 child: $81,1672
Married with 2 children: $91,810
Married with 3 children: $100,810
Married with 4 children: $109,810
Married with 5 children: $118,810
Married with 6 children: $127,810
Married with 7 children: $136,810
Married with 8 children: $145,810
Married with 9 children: $154,810
Married with 10 children: $163,810
If you have more than 10 children, you’re probably going to be below median. I have 11 children, and I know how expensive that can be.